Mellon Bank, N.A. And Robert B. Reed, Jr., Executors of the Estate of A. Leon Davis A/K/A Austin L. Davis, Deceased v. United States
762 F.2d 283
3rd Cir.
1985
Check Treatment

*1 judgment district court will be affirmed. BANK,

MELLON N.A. Robert B.

Reed, Jr., Executors of the Estate A. Davis,

Leon Davis Austin L. De- a/k/a

ceased Johnson, J. Alan Atty., Pittsburgh, Pa., Archer, Jr., Glenn L. Gen., Atty. Asst. America,

UNITED STATES Paup, Michael L. Bernstein, A. Robert Appellant. Douglas G. (argued), Coulter Attys., Tax No. 84-3541. Div., Dept, Justice, Washington, D.C., appellant. Appeals, United States Court of Third Circuit. Houston, William (ar- McC. John F. Meek gued), Houston, Donnelly, Houston & Pitts- Argued March burgh, Pa., appellees. May Decided ALDISERT, Before Judge, Chief 18,1985. Rehearing Denied June STAPLETON*, SLOVITER and Circuit Judges.

OPINION OF THE COURT SLOVITER, Judge. Circuit We must determine a bequest nonprofit cemetery was deductible for purposes as a to an organization operating exclusively for “charitable” section 2055(a)(2) of the Internal Revenue Code. pertinent facts not disputed. are A. Leon Davis died testate on December provided 1976. His will that the residue his estate towas be distributed to the Oakmont, Cemetery, Verona Pennsylvania, $30,000 of which applied was to be to the building, erection of a utility new with the go cemetery’s balance to endowment fund. Davis’ executors filed a Federal Es estate, tate Tax paid tax, return for the Delaware, trict multiplier awarding court abused its sitting designation discretion in at the time of contingency). of two to argument, account for appointed has since been the Court Appeals. * Stapleton, Judge, Hon. K. Walter who was Chief United States District Court for the District *2 purposes, for Tax state asserting a charita- Federal Income claim then filed a and (the $370,901.74 tax, county total of sales and and local real deduction ble Ceme- taxes, the Verona qualifies distributed and also as a charitable amount $97,- of claiming a tax refund tery), and Pennsyl- organization for of the 557.15, The Internal Reve- plus interest. Act. vania Inheritance Tax de- the charitable disallowed nue Service pertinent provision of Internal The for a the claim refund. and denied duction of 1954 allows deduction Revenue Code a remedies, exhausting administrative After bequests: from the taxable estate of for a filed action refund. the executors any corporation for the of or- or use stipulated. The facts were All operated ganized and for reli- for sum- filed cross-motions the estate and charitable, scientific, gious, literary, or and the district court mary judgment, purposes, part ... no of educational estate, summary judgment for granted earnings of to the bene- net which inures government appeals. The F.Supp. 160. private any fit of stockholder or individu- Cemetery Association was The Verona al, disqualified tax ex- for as by nearby residents established emption under section reason non-stock, nonprofit corporation for the a attempting legislation, of to influence space any purpose providing of burial in, participate or in- and which does not religion or It is person regardless of race. political any campaign in ... on tervene any reli- by or affiliated with not owned any for public candidate office behalf gious group governmental unit. The or cemetery approximately 8.5 consists § 2055(a)(2) (1982). The sole 26 U.S.C. 8,490 acres, used for most of which are below, question appeal, on as is whether plots, all of which have been or soon burial cemetery “corporation organized a some will be sold. There are also operated exclusively and charitable ... utility buildings, chap- a nondenominational purposes.” ... el, centrally and a located CivilWar Memo- The district court held that the rial, Day at which Memorial services Cemetery did for a qualify to the Verona annually. are held § 2055(a)(2). under The court cemetery revenues from the receives weight prece recognized that of case sites; following grave sources: sale government, favored the but stated dent grave openings; charge an endowment language Supreme re in the Court’s that per grave deposit site for in the $150.00 University cent decision Fund; mowing charges Endowment annual 574, 103 States, S.Ct. United 461 U.S. grave sites on which no endowment (1983), required reevalua L.Ed.2d sale; charge imposed at the time of There, that view. foundations; charges for headstone two Court, a considering the tax status generate privately trusts which established university as a institution approximately year; a small $400.00 provision, an income tax 26 U.S.C. ashes; charge for burial cremation § 501(c)(3)(1982), stated in order charge deed and endowment when a $10.00 tax-exempt organization an be entitled conveys directly party. lot owner third “certain status it must meet common-law early cemetery’s history treat- is, “must charity”, standards indigents ment unknown. recent public purpose and serve a not be years, prac- there has been no established public policy.” established authorizing denying tice either free or indigents, reduced services and no rate ex- The district court read request has made. such services been “contemporary pansively stating has, occasion, cemetery provided on ‘charity’ considers the benefit view of grave openings paid and not been due to community court a whole.” The alleged cemetery funds. The has lack of stated, cemetery organization found to then “The maintenance of been be benefits part associations and no facilities the net earn- community through ings its both aesthetic which inures to the any benefit of performance private of a effects neces- shareholder or individual. Additionally, sary task.” the court social § 501(c)(13)(1982). exemp- This *3 that if the were to become noted independent tion has been from that for insolvent, maintaining the burden it organizations “charitable” since 1913. See borough. could fall on the Pa.Stat.Ann. tit. 1913, 16, 114, The Tariff Act of ch. 38 Stat. (Purdon 53, 1966). Therefore, 47804 172; 1921, 136, Revenue ofAct ch. 42 Stat. public district court concluded that non- 227, 253. organiza- are profit cemeteries specific provision There for de- important tions because of the social func- for duction income tax of contri- they perform tion and the concurrent less- cemetery companies butions to until 1954. ening of the of the burden fisc. time, part At that of a revision Although the executors Code, the Internal Revenue section requires University Bob Jones case 170(c)(5) permit was added to deduction of by we construe the “charitable” look- word to cemetery companies contributions meet- concept charity, ing to common law ing description same as set forth in in light we we are not free to do so believe § 501(c)(13). Report The Senate on the the framework the Internal Revenue 1954 Code stated that this amendment “ex- Code, and its treatment “charitable” or- the deduction for charitable con- tended] ganizations. beyond tributions those allowed under 501(c)(3), present law to provision contributions made to non- Section at issue University profit cemetery companies.” and burial deals with Comm., organizations exempt Report Senate Finance on those that are from Internal 1954, purposes. Cong., taxation for income tax Deducti- Revenue Code 83d 2d Sess. reprinted in 1954 U.S.Code bility organi- Cong. of contributions made to such & Ad. pro- 4621, is 170 (emphasis added). zations covered section News 4660 taxpayer vides that a makes who contribu- contrast treatment organizations tions to the covered sec- cemetery companies pur for income tax 501(e)(3) may tion deduct those contribu- poses, provision dealing the estate tax Thus, purposes. tions income tax organizations, deductions to “charitable” organizations “charitable” are § 2055(a)(2), 26 specifical U.S.C. was never 501(c)(3) from taxation under section ly cemetery compa “extended” to cover organizations to contributions “charitable” Thus, implausible nies. is construe taxpayer’s are deductible from the income 2055(a)(2) section to cover situation which 170(c)(2)(B). under section required an amendment to an almost identi statutory Other subsections those sec- parallel provision cal in the income tax sec provide explicitly nonprofit tions ceme- Congress’ tions to reach that result. inac teries, suggesting organiza- thus that such respect tion with encompassed tions are not within the mean- particularly probative given the estab ing organizations. of “charitable” Section prior denying lished case law to 1954 501(c)(13) provides separately exemp- deduction for contribution cemeteries for tion from income for: See Gund’s Estate v. estate Commissioner, (6th [c]emetery companies operat- Cir.), owned and 61 cert. 113 F.2d denied, 696, ed for the benefit of their 85 L.Ed. (1940); National operated members or which are not Wilber Bank v. Com missioner, profit; corporation and any See also chartered 17 B.T.A. 654 Commissioner, solely Craig disposal of the 11 B.T.A. 193 (1928) (not pur bodies burial or cremation which for income tax Nichols, Schuster v. permitted by engage poses); its charter F.2d 179 necessarily (D.Mass.1927) (same). any business incident to a church-related for a deduction noted, of a allowed the absence court has As one clause cemetery violates the establishment section income counterpart equal pro- and the First Amendment 501(c)(13): Amend- guarantees of the Fifth tection intent Con- anything, illustrates agree that the establish- parties ment. as an to include gress not must be addressed clause issue ment Sec- exemption set out'in exemption, the forth three-part test set light of the tax situations. to estate 612-13, Kurtzman, 403 U.S. Lemon v. Grimshaw, 165 U.S. Hopkins v. Cf. (1971): 2105, 2111, It [405], 41 L.Ed. 739. First, a secular province of must have exclusively the the statute second, principal its legislative purpose; determine its wisdom tax statu- that nei- in its estate effect must be one provide primary wishes *4 ...; appearing religion in its those nor inhibits exemptions all ther advances tory exemptions. “an not foster finally, tax the statute must statutory income entanglement with government excessive States, 304 Carthage v. United Bank of religion”. 77, (W.D.Mo.1969). F.Supp. 81 that, applied, as sec- executors The why suggests no reason government The 2055(a)(2) “primary effect” of has the to treat de chosen Congress would have falling advancing religion, thus organizations differ cemetery to ductions test. part of the Lemon second purposes. ently for income and recognized, to the argument presented the Second Circuit As A similar “anomaly” by “establish wrought has v. Tax Commis- Supreme Court Walz nonprofit 664, 675, ceme of ing York, treatment 90 different 397 U.S. sion New 1414, (1970), and estate tax 1409, for income 697 tery associations 25 L.Ed.2d S.Ct. court, but, leave we purposes,” like status of reli- dealing the tax with “congressional recognized wisdom.” anomaly to The gious organizations. Court 579, States, course, 540 F.2d 584 of churches Child v. United taxation that “[e]ither 1092, denied, (2d Cir.1976), 429 U.S. degree cert. exemption, occasions some (1977). 1104, 674, It 51 L.Ed.2d at religion”. 97 S.Ct. involvement with Nonetheless, are inev may up- such “anomalies” be that the Court at 1414. S.Ct. body statutory law as com any constitutionality property itable held the As the Revenue Code. af- plex religious organizations, as the Internal exemptions for noted, “[legislatures has effect of Court of the untoward ter consideration creating especially broad latitude The abolishing exemption. have Court in tax stat distinctions minimizes exemption only classifications and found that Represen Regan religion, v. Taxation utes.” of the state id. entanglement 1997, 540, 547, tation, 1415, 676, proven 461 U.S. has histor- 90 S.Ct. at but 2002, (1983). encouraging Whether danger ically pose 676-80, in this “anomaly” brought to our attention religion, id. establishment oversight, it is or an case was intentional 1415-17. S.Ct. at statutory not for us to amend find the that the Court would We believe bequests provide for deductions statutory reasoning applicable to a same Con nonprofit cemetery associations when deductibility of con- permitting the scheme do so.1 gress has failed to organizations. religious tributions deduction for contributions only Grant of the Finally consider brief we need here, organizations (or, bequests) for as argument that disallow ly the executors’ religious purposes exclusively to devoted when it would be of this deduction ance National history tery But see First to be “charitable”. we find the 1. Because 534, (8th States, 681 F.2d 540-41 dispositive, Bank v. United we need not decide framework denied, Cir.1982), whether, analysis, 459 U.S. independent cert. we under an non-profit regard 74 L.Ed.2d 952 activities of a ceme- very government inquiry into whether narrow avoids a the Internal any organized the Revenue of 1954. majority churches were Code rea- exempt purposes, e.g., they sonably interprets 2055(a)(2) other purposes, organized for “charitable” were bequest non-prof- and concludes that a grave dangers might pose inquiry that cemetery is not deductible for estate tax religion claus- values fostered join I am not inclined their Walz, Also, did the Court in we note es. acceptance government’s position, availability of the historical deductions persuaded I have because not been religious organizations contributions to justification par- there a rational has not been shown foster establish- adox: religion. provisions us, * ment of before non-profit A contribution to a cemetery therefore, issue in are unlike scheme at is deductible for income if v. Ny- Public Education Committee for you during your make it lifetime. quist, 413 U.S. * non-profit A contribution to (1973), upon the execu- L.Ed.2d 948 which is pur- for estate rely. the state had tors estab- you poses make in a system of benefits for lished a new will. attending non-public parents children schools, government was found advance the admits that this does religious sectarian activities schools. not make much sense. The *5 holding governed by the in This case is public concedes is no that there identifiable the Walz where the found that ex- Court policy justification the distinction. emption did not violate the establishment Nevertheless, government argues the that “genuine clause because there nexus Congress because anomaly, created this exemption and establishment between Congress also must eliminate it. religion.” at 397 at 90 S.Ct. centerpiece government’s the ar- Congress’ statutory Since treatment of gument Congress is that has enacted a bequests religious organizations, and there- special income tax deduction contribu- to, upheld ground can be on the that non-profit tions cemeteries. entanglement religion, avoids with this con- § 501(c)(13). this, government From the sufficiently stitutes a valid basis for the us conclude would have that 1954 it was challenged executors, by classifications the intention, time, Congressional the at that reject and we therefore also the executors’ pur- include a deduction for income tax equal protection argument. poses, but not for estate tax Moreover, argument, the executors’ even My own research into the his- successful, not redound to their would Code, however, tory the indicates that benefit, permit- since at the most deduction Congress was no that in- there discussion religious ted affiliated cemeteries tended to exclude the deduction for estate impermissible. holding be a would Such point purposes simply 1954. The would not entitle these executors to the discussed, argument, was not and at oral they seek. the conceded as much. I above, For the reasons set forth we will § agree attempt that an entry the reverse district court’s summa- clarify charitable deduction ry judgment plaintiffs for the and direct (contri- 170(c)(2)(B) 26of U.S.C. govern- judgment entered for the that be corporation organized and op- butions to a ment. purposes) erated for charitable counterpart which is the income

ALDISERT, Judge, dissenting. Chief interpretation estate tax statute under though proceedings (bequests corpora- Republic will still stand even these organized operated exclusively court is divided on what constitutes a and this purposes). for estate tax charitable highly problem. I think however, this technical believe, that the 1954 omis- I act, inequities purposes was technical courts must otherwise sion oversight, I drafting presented and and inconsistencies case be construed cannot Accordingly, inaction I will be us forever. congressional intent expression judgment affirm the district meaning of interpreting “charita- when court. § 2055(a)(2)which, it must purposes” ble primary responsibili- emphasized, our be ty today.

Thus, goI back to the statute we are called

general estate tax Judge Like District

upon to construe.

McCune, teachings latest I turn to the Supreme Court set forth States, University v. United (1983), Herman, Zelig HERMAN, Joshua Heather purpose. There learn what Herman, guardian infant his ad corporation for a to be the Court said that Herman, Herman, Zelig litem Felicia to tax status entitled guardian litem an infant her ad Zel § 501(c)(3) “certain it had to meet common- ig Herman, and Rachel Herman her and charity,” law standards of guardian Zelig ad litem Herman public purpose serve a meant that “must established not be I policy.” LIFE INSURANCE GUARDIAN non-profit cemetery here believe OF AMERICA. COMPANY law met that both under common Pennsylvania law. And traditions Zelig Appeal of HERMAN. Court has I believe what the *6 interpreting said No. 84-5699. the income tax stat- equally applicable to the ute is Appeals, United States Court of provision. Third Circuit. view, the taking majority In 12(6) Rule Submitted Under Third Circuit recognize inequity of re- seems to 1,May sult, anomaly would “this to Con- but leave gressional May I not. I wisdom." would Decided inconsistency remove now blatant Schaefer,

judicial action. Walter Y. legal

distinguished jus- and retired scholar Court, once

tice of Illinois unspoken notion of judge’s

discussed “the He function of his court.” wrote judge role of the court as

if a “views the one, willing delegate he

passive bewill responsibility change, and he will delegated au- greatly care Schaefer,

thority is exercised or not.” Policy,

Precedent 34 U.Chi.L.Rev. suppose I I am because, considering priori- passive, realpolitik, I doubt that Con-

ties get enough ever act on

gress excited will